Hurricane Sandy — Responding to Catastrophic Losses, Insurance Policyholder Advocate
If your business suffers a flood, wind, or water-damage loss, the insurance claim process requires careful management. Based on our past experience with such losses, sometimes resulting in difficult litigation, we have identified the following tips and steps for policyholders to consider immediately upon suffering an insured or potentially insured loss.1
(1) Identify and secure all insurance policies that may respond to the losses. You may have coverage for losses, such as business interruption losses, even in situations where no physical damage occurs to your property. Identify other loss payees and determine whether other ancillary documents are relevant (leases, credit agreements, etc. often have provisions for providing insurance and/or payment of insurance proceeds).
(2) Analyze the coverage the insured has for each type of potential loss, including exclusions, retentions, and policy conditions. Identify debris removal coverage and pollution coverage. Identify business interruption coverage. There may be coverage for damage to customer or supplier locations, resulting in financial loss to your business, as well as coverage for extra expenses incurred to sustain your business. There may also be coverage for losses due to an inability to access your property because of governmental order and/or physical damage to the property of others.
(3) Identify your loss mitigation duties. Identify timetables required for reporting and documenting the loss.
(4) Identify and document the losses with detail, including photographs and videotape where possible. Collect and preserve evidence in a form that will be admissible at any trial, if needed.
(5) Provide notice to insurers.
(6) In any notice of loss and other internal and external communications, avoid ascribing definite "causes" to losses until you have complete and accurate information. For example, do not conclude there has been definite "flood" damage vs. "wind" damage vs. "water" damage until sufficient information is available.
(7) Assess the availability of early interim payments and the policy's proof-of-loss requirements. Do not assign damages amounts to losses without adequate information. If necessary to assign some amounts to losses, then make clear that any estimates are subject to significant revision as the loss is better understood.
(8) Institute a system to ensure that the policy requirements are met (e.g., allowing insurers to inspect damaged property or equipment before cleanup or disposal begins and allowing them to have input on recovery strategies and contractors, if appropriate).
(9) Develop a communications strategy, involving in-house and/or outside counsel, and key risk department personnel. Recognize that all communications may become subject to discovery in any resulting litigation or other claims dispute. Make sure that the broker does not characterize your claim or loss in a manner with which you do not agree. Try to identify one person to serve as the principal point of contact with insurers, and educate that person on potential coverage issues.
(10) Sensitize field personnel to insurance issues that may be involved.
(11) Ensure that accounting systems are set up to track expenses related to the loss (e.g., set up separate accounts for expenses and ensure that backup documentation is retained). Prepare to respond to extensive and ongoing information requests from insurers and develop a system to track what has been requested and provided. Consider a physical or electronic "data room" available to multiple insurers.
(12) Consider immediate retention of consultants, including forensic accountants, to help the company quantify and mitigate its losses. Make sure these consultants fully understand the policy requirements and are answerable to those requirements. Evaluate their suitability as witnesses in arbitration or trial, if needed.
(13) Be aware of statutes of limitation or shorter periods in the applicable policies by which you are required to submit claims or bring a lawsuit. Insurers generally agree to extend these requirements if requested to do so.
(14) Retain experienced legal counsel familiar with insurance policy interpretation and claims.
1. Insurance claims are highly fact-specific and require careful attention to the policy wording and the circumstances of the particular loss. This checklist is for informational purposes for consideration by experienced claims personnel in conjunction with legal advisors, and is not to be considered as legal advice in respect of any particular loss, claim or factual situation.
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